In a conventional open auction, each potential buyer of an instrument knows the bids of the other potential buyers. Such an open auction allows the potential buyers to take advantage of their knowledge of the details of the other bids and can result in the winning bidder obtaining the instrument for a lesser value than he or she would otherwise have been willing to pay. Thus, providing information regarding other potential buyers' bids to each potential buyer may be detrimental to the seller.
Alternatively, in a sealed bid auction, potential buyers do not know any details of the bids of others. Such a system also can operate to provide less than a best bid price, because potential buyers may hesitate to adjust bids since they may simply be “bidding against themselves.”
Thus, there is a need to create a system for auctions which encourages bidders (or offerors) to present their best possible bids (or offers) in an efficient manner.